What is a triple net lease?

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A triple net lease is a real estate arrangement in which the tenant pays a portion of the property's operating expenses in addition to a base rent amount. The operating expenses usually include insurance, taxes, utilities and the fees for common area maintenance. A tenant's annual leasing costs are less predictable in a triple net lease arrangement, although a landlord will provide an estimate of the property's yearly operating expenses before the tenant takes occupancy.

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A triple net lease is also referred to as an "NNN" lease. This term is derived from "net-net-net," which is based on the landlord in effect collecting rent as a net over expenses and the lease payments, including the three most common commercial property expenses: insurance, maintenance and property taxes.

In a triple net lease arrangement, the landlord provides the tenant with an estimate of the annual expenses, and then adjusts accordingly at the end of the lease year. If the actual operating expenses are less than the landlord's estimate, the tenant receives a credit. If the operating expenses turn out to be more than the landlord's estimate, the tenant pays the difference.

Tenants may find the triple net lease to be preferable to a gross lease, or fully serviced lease, because gross lease payments are usually greater due to the property operating expenses being folded in. The triple net lease reflects a more accurate accounting of the actual property costs. Landlords often view the triple net lease arrangement as carrying much less risk.